2023-05-31 15:44:30
The Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, meet in Vienna on June 4 to decide on their production policy.
The group, known as OPEC Plus, agreed on the second of last April to increase the cut to 3.66 million barrels per day, which is equivalent to 3.7% of global demand, following several members pledged unilateral cuts.
The sudden announcement helped lift prices by regarding $9 a barrel to above $87 a barrel in the days that followed, but Brent crude prices have since lost ground.
Here are the main reasons behind the OPEC Plus production cuts:
Concerns regarding weak global demand
Saudi Arabia said that the voluntary production cut of 1.66 million barrels per day, in addition to the current cuts of 2 million barrels per day, comes as a precautionary measure to improve market stability.
Russian Deputy Prime Minister Alexander Novak said that among the reasons for the cut were the banking crisis in the West as well as “interference in market mechanisms”, a term used by Moscow to refer to the maximum imposed by the West on Russian oil prices.
Fears of another banking crisis in recent months have led investors to sell off riskier assets, such as commodities, as oil prices have fallen to nearly $75 a barrel from a peak of $139 in March 2022 and might trigger a global recession. to lower oil prices.
Concerns regarding the US debt ceiling negotiations and concern regarding the default of the world’s largest oil consuming country imposed on its debts; pressure on oil prices.
“Any potential default will have catastrophic economic repercussions, both locally and globally, and thus a negative impact on oil demand,” said Tamas Varga of PVM Oil.
Punish bettors
Reducing oil production will punish short sellers, that is, those who bet on lower prices, and Saudi Energy Minister Prince Abdulaziz bin Salman warned traders in 2020 once morest increasing betting in the oil market, and he pledged that those who bet on the oil price would suffer, and he repeated his warning last week when he asked Speculators are cautious, which many market watchers and investors interpreted as a sign that OPEC+ may consider further production cuts.
Analysts at Standard Chartered Bank said in a report issued last week that the trend of short-term speculative positions on the price of crude oil was bearish earlier this month, as it was at the beginning of the Corona pandemic in 2020 when demand for oil collapsed and prices fell.
Ole Hansen of “Saxo Bank” said that the latest data shows that money managers increased their net long positions in Brent crude by more than 30 thousand contracts, the largest increase in almost two months, and added that for WTI, the move in the opposite direction. to a decrease of 17 thousand contracts to 143 thousand contracts.
tensions with Washington
Any further cut from the group might lead to tensions with major consuming countries trying to fight inflation by raising borrowing costs.
Washington described OPEC Plus action last month as inappropriate, and the West repeatedly criticized OPEC.
The United States is considering passing legislation, known as “NOPEC”, that would allow the seizure of OPEC assets on US soil if it is found to be complicit in destabilizing the market.
OPEC+ criticized the International Energy Agency, the West’s energy watchdog, and the United States is its biggest financial donor, for releasing oil stocks last year, saying it was necessary to lower prices in light of fears that sanctions might disrupt Russian supplies.
And the International Energy Agency’s expectations that prices would rise were never realized, prompting OPEC Plus sources to say that the agency is politically motivated and aims to help boost US President Joe Biden’s position.
The United States, which has released most of the stockpile, said it would buy back some oil in 2023, but has ruled out doing so at a later date.
OPEC watchers also say the group needs to increase nominal oil prices because the West’s money printing in recent years has devalued the dollar. This means that OPEC needs to protect its revenues from exporting its main product, which is traded in dollars.
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